Start or Buy a Business which is for Sale?
Start a Business or Buy a Business which is for Sale?
Every year thousands of people like you consider entrepreneurship. The first important question that you have to consider is whether you want to start a business or Buy a Business. Each path to business ownership has a variety of advantages and disadvantages that the would-be entrepreneur should consider.
Nathan Goldstein, CEO of Vested Business Brokers states, “Starting your own business can be very rewarding, but generally requires an idea or concept that revolves around a unique product, technology, or marketing plan. Developing a business idea from scratch will usually involve less up front costs compared to buying a business, and can frequently be tested from a home or small office. You also won't have to pay someone for goodwill. Keep in mind though that researching a new business idea is extremely important because frequently, ideas that seem to make initial sense do not after a detailed investigation. A business broker can help you determine whether a business is right for you. There may be little or no demand for the product or service, or competition may be so fierce that a profit cannot be made. Thorough research should tap as many resources as possible, such as the Small Business Administration, other business owners, the Internet, your local library, and relevant trade associations.”
There are a number of disadvantages to starting your own business, which can be circumvented when you Buy a Business. You will need to attract customers, which can involve quite a bit of time and effort. Because there may be months or even years of few, if any, profits from the business, you may need to support yourself with personal savings. Financing a new business can also be very difficult. Most people rely on their family, friends, and personal funds to get them through the rough times until profitability. Another important factor to consider when you start a business is the risk, again not as serious a consideration when you Buy a Business. The chances of survival for a start up business are very low. Some surveys indicate up to a 75% failure rate. Naturally when you Buy a Business, the likelihood of it failing is considerably reduced.
So Should You Buy a Business?
“Buying a business can be a more effective way to business ownership, but is frequently more costly. Existing business owners will expect you to pay for providing you with an existing customer base and location. In addition, there can be contingent liabilities associated with buying an existing business, although structuring the transaction as an asset purchase can usually protect you from these liabilities.” Mr. Goldstein suggests, “That's why it is prudent to contact a business broker. Both a seller and buyer benefit from the experience of a professional.”
When you Buy a Business, the advantages typically outweigh the disadvantages. Existing businesses can usually obtain financing from financial institutions because they have an established history, assets, and a proven idea. Or, the seller of the business will provide a portion of the financing in the form of a loan. Established businesses are less risky because there is an existing customer base, relationships with suppliers, operating processes, a known location, and employees have already been hired and trained. In addition, there is existing cash flow which will likely provide some immediate income to the buyer.
Experts generally agree that, in most cases, paying the extra cost for an existing business will outweigh the risks of starting one from scratch. The reduced risk, the ready infrastructure and the proven idea are just some of the reasons that many seasoned businesspeople recommend that you Buy a Business, rather than start one from scratch.